House of Lords rejects public beneficial ownership registers for six overseas territories

(International Investment) — On Wednesday the UK’s House of Lords voted down a proposal that would have called for six overseas territories to implement a publicly-accessible register of beneficial ownership by 1 January, 2020.

The vote took place during a debate on a proposed Sanctions and Anti-Money Laundering Bill, of which the plan to introduce a public beneficial ownership requirement had been put forward as a possible amendment.

According to the Hansard records of the debate, the measure had been tabled by Baroness Stern, but was rejected by 211 to 201 votes after a debate, which included comments by Lord Flight, a commissioner of the Guernsey Financial Services Commission.

The six jurisdictions that were the focus of the amendment were Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Montserrat and the Turks and Caicos Islands.

As reported, as of 1 July 2017, all Crown Dependencies and Overseas Territories (CDOTs) were required to have an equivalent and reciprocal mechanism in place with the UK to enhance the exchange of beneficial ownership information with law enforcement authorities – something they’d signed up to in 2016, following the introduction of the UK’s Register of People with Significant Control.

However, unlike the proposal rejected by the House of Lords on Wednesday, the information in question can only be shared with law enforcement entities, and is not required to be available to the public.

In introductory remarks, Baroness Stern said that one of the six jurisdictions in question, Montserrat, had already said it would agree to a public beneficial ownership register.

In his comments, Lord Flight said the proposed amendment “would be counterproductive in its effect”, and added: “it is interesting to note that law enforcement agencies do not support public registers, particularly in such territories, as they do not improve law enforcement capabilities”.

“Moreover, the UK’s overseas dependencies have already shown themselves extremely efficient in responding to the requests of policing and other agencies,” Lord Flight, who is also chairman of the Aurora Investment Trust plc, added.

“Interestingly, tax authorities do not support public registers either, as people report less candidly than when information is available only to public authorities.”

Echoing comments of others, Lord Flight also noted that public registers of beneficial ownership are seen to “facilitate identity theft”.

“I think everyone is in favour of the objective; the question is how you achieve it most effectively. I have been a commissioner on the Guernsey Financial Services Commission for a number of years, and have had some involvement in what Guernsey has done. Interestingly, Guernsey scores higher than the UK for general regulatory effectiveness and compliance.

“However, the crucial thing is that the registers are accurate, have been verified and can be used swiftly by the proper authorities that need that information. I am afraid that making them public undoes a lot of the point of them.”

Registers could inflict competitive disadvantage

Lord Naseby, a Conservative British peer who prefaced his remarks by declaring his interests “as a vice-chairman of the All-Party Parliamentary Group for the Cayman Islands, and the fact that I have family working in the Cayman Islands”, pointed out that the fact that most countries currently are not adopting public registers could mean that the proposed amendment requiring them of the UK’s offshore centres would put them at a competitive disadvantage.

“Certainly, for the overseas territories in the Caribbean, the rival centres are the United States, Hong Kong and Singapore,” Lord Naseby said, the Hansard minutes of the debate show.

“They have all looked at public registers but not one has agreed to it. So if we force the overseas territories to have public registers, the effect will be that business will move away.”

He also questioned the constitutionality of the UK passing legislation of this kind for the “self-governing” overseas territories.

“To use an Order in Council for financial regulation [of these jurisdictions] when the overseas territories have already adopted international standards, while the UK has not, would expose the UK to legal challenge as potentially irrational, and therefore could be overturned on judicial review,” he said.

“It would also be provocative… to Scotland and the other devolved administrations in the United Kingdom.”

In her statement in support of publicly-accessible beneficial ownership registries, Broness Stern noted that the case for “ending secrecy” was becoming ever stronger, “as more information emerges about how illicitly obtained money is protected from discovery by anonymity”, which she went on to explain was being provided at the moment by “whistleblowers and hackers ” who had been taking “great personal risks in order to expose this criminality”.

“Thanks to the work of these whistleblowers and hackers, a flow of information has emerged, from the offshore secrets database in 2013, through the Panama papers of 2016 to the Paradise papers last year. It should be noted that more than 100,000 of the accounts revealed in the Panama papers were registered in the British Virgin Islands.

“This information has given law enforcement and tax collection agencies a chance to pursue a considerable amount of criminality. For instance, Europol reported at the end of 2016 that it had found in the Panama papers database nearly 3,500 probable matches to organised crime, tax fraud and other criminal activities.

“The report on the recent work of the Government’s Panama papers task force revealed that in October last year 66 investigations were under way into tax evasion, organised crime and money laundering—and all that is the tip of the iceberg.”